Relationship between Solvency Ratio and Financial Indicators in Iranian Insurance Companies

The solvency of insurance companies is undoubtedly crucial for an insurance system to function. It’s an essential factor to staying in today’s insurance industry. Solvency is world-leading standard that requires insurers to focus on managing all the risks they face and enables them to operate much more efficiently. This study s aim is to model the factors that significantly affect the financial health of insurance companies taking solvency ratio as dependent variable. It has taken the 10 insurance companies as samples. These companies have taken in first level of solvency. We employed multiple linear regression model. For this purpose, we used some of the companies specific characteristics such as reinsurance actuarial issues, expenses ratio, loss ratio, combined ratio and ability of loss compensation against the solvency ratio. This study led to the conclusion that the ability of loss compensation have significant positive relationship with the solvency ratio. But, loss ratio, expenses ratio and combined ratio have significant negative relationship with solvency ratio. Further, it is found that solvency ratio of Iranian insurance companies is not influenced by reinsurance and actuarial issues.

Keywords:

solvency , reinsurance actuarial issues , expenses ratio , loss ratio , combined ratio , ability of loss compensation